Financial Resource Center

Top 6 Excuses for Not Saving for Retirement

Life can be expensive and saving for a far-off event like retirement can feel like the least of your worries and the lowest of your priorities. But here’s the thing—life doesn’t get less expensive later on!

If you want to set yourself up for success and comfort in retirement and avoid financial distress in your twilight years, then read on to stop making the top excuses for not saving enough for retirement.

It’s understandable when faced with immediate financial stresses and bills to feel that putting off saving for retirement until a later date is the best decision. Except there will always be short-term financial demands on your money. Putting off important financial moves like saving for retirement until an imagined future financial scenario (a new job, raise, bonus, inheritance, or other windfall) can lead to “lifestyle inflation.”

“Lifestyle inflation” describes the scenario where, for every dollar more someone earns from a raise or bonus, they spend it on a more expensive lifestyle—new car, new phone, bigger cable package, bigger home. Now those everyday bills have increased in proportion to their income, and they’re right back at the excuse of not saving for retirement.

Instead, make a commitment to regularly save for retirement every paycheck or every month, no matter how small the amount. This will ingrain the habit of saving and help you factor it into any new budget after receiving a pay raise. It will also allow you to take fuller advantage of compounding interest.

This statement is usually accompanied by the question: “Isn’t it better to pay down student loan debt, eliminate credit card debt, establish an emergency savings fund, and save for my kids' college funds before padding my retirement savings?”

Often the first reaction is to not prioritize retirement because it’s far away. But any small amount is better than nothing, especially when you consider how compounding interest works (more on that below). While paying off debts and building an emergency fund are sound financial goals, many financial advisors would rank paying for kids’ college as the least important as there are many ways to pay for affordable college education, but only limited ways to meet your financial needs when you’re older and possibly unable to work. Those advisors would also say that you can pay down debt and save for retirement at the same time—there’s no rule against it! Simply put the emphasis on paying off debts and then transfer the amount you were spending on those bills to save more for retirement.

Excuse 3: “I’m saving for my kids’ college education first.”

No one could blame parents for wanting to remove all or some of the financial burden of paying for college from their kids’ shoulders. But for the majority of Americans, it’s a better investment to keep saving for retirement and find other ways to pay for college.

There are more options to save and pay for college then there are for retirement. Students can work while in school, qualify for scholarships and grants, take out loans that they’ll have a longer time and increasing earnings to pay off, and stretch out their education by studying part time and working part time to avoid student debt all together. While students have time on their side when it comes to choosing their major and paying for it, those approaching retirement don’t have that asset in abundance.

Not saving enough for retirement—especially considering people are living longer—can mean becoming a burden to your adult children if they need to become financially responsible for you in your old age. Financial experts say one of the best ways to avoid having to decide between college costs and retirement savings is to set up a 529 savings account for each of your children as early as possible.

Excuse 4: “I don’t need to save. I’m going to work until I die.”

Besides being naively pessimistic, this statement doesn’t have good odds of being accurate. While people are living longer, that doesn’t necessarily mean they’re able to work longer—which means there’s a longer stretch of time between entering retirement and passing away.

Recent data has shown that older workers are more likely to be laid off or forced into retirement. You can’t count on the steady and growing salary in later years as you had in the prime of your working life. What you can count on are living and medical costs increasing as you age.

Excuse 5: “I have plenty of time. I’ll eventually get around to it.”

When you use this excuse, you literally rob yourself of thousands of dollars—or more. Retirement savings and investments rely on compounding interest to make you more money the longer you save. Here’s an example:

If a 23-year-old puts $3,000 per year into a Roth IRA that earns a 7.8 percent average annual return, forty-four years later at retirement that $132,000 of invested funds ($3,000 per year times 44 years) will have grown to $1,009,275.

Conversely, starting that same Roth IRA 20 years later at age 43 and investing $132,000 for the next 24 years (putting in $5,500 every year with a 7.8 percent average return) would earn $357,167. The delayed start in saving—despite saving more every year—cost the person more than $652,000 in retirement savings.

Excuse 6: “I’ll live off Social Security.”

According to the 2010 trustees report from the Social Security Administration, at the current collection and withdrawal rates, the disability insurance reserve of Social Security will run out in 2032 and the old age and survivors’ benefits in 2034, resulting in Social Security’s combined trust fund running dry in 2034.

The latest projections estimate a benefits reduction of 21 percent by 2034 if no changes are made to the program by Congress. Social Security will only be able to pay 79 percent of combined scheduled (i.e., needed) benefits to retirees: 96 percent of disability benefits and 77 percent of old age and survivors’ benefits. By 2089, benefit coverage is expected to shrink to 73 percent.

This means a more than 20 percent cut in benefits for retirees—a scary projection for those not saving to pad this payout, especially when full Social Security benefits today barely allow seniors to live above the poverty line, with an average monthly benefit of $1,172.